Question
Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some time, as shown by its most recent monthly contribution format income
Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement:
Sales | $ 1,593,000 |
---|---|
Variable expenses | 585,330 |
Contribution margin | 1,007,670 |
Fixed expenses | 1,108,000 |
Net operating income (loss) | $ (100,330) |
In an effort to resolve the problem, the company would like to prepare an income statement segmented by division. Accordingly, the Accounting Department has developed the following information:
Division | ||||
---|---|---|---|---|
East | Central | West | ||
Sales | $ 383,000 | $ 630,000 | $ 580,000 | |
Variable expenses as a percentage of sales | 51% | 26% | 39% | |
Traceable fixed expenses | $ 259,000 | $ 335,000 | $ 193,000 |
Required:
1. Prepare a contribution format income statement segmented by divisions.
2-a. The Marketing Department has proposed increasing the West Division's monthly advertising by $25,000 based on the belief that it would increase that division's sales by 11%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented?
2-b. Would you recommend the increased advertising?
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